Economy Googling its Way Toward Growth | July 19th 2015

State of the Stock Market Analysis for the Week Ending July 19th, 2015 (Economy “Googling” its Way Toward Growth 07-19-2015)

With Greece subsiding as the big worry of the week, investors gave a big cheer as the Nasdaq hit a fresh, all-time high. Powering the rise was none other than Google (GOOG), whose shares rose by 16%, or $93, to $672 on earnings news. While it was impressive, it had some investors thinking back to the Tech Bubble of 2000. Google is a massively successful company, and its big rise to all-time highs on Friday was impressive. The big question that its rise raised, however, is whether the broader U.S. economy can “Google” its way toward growth and prosperity. The deeper economic issues remain, but a win is still a win for the Nasdaq, and few bulls were complaining.

For the week, the Google-backed Nasdaq gained 4.2%, as a host of other tech-tech related names like Facebook (FB) and Netflix (NFLX) also saw solid gains. It was a decent week for the broader market as well, and despite the slight gain for the S&P on Friday, the Dow did close lower for the day. It was an up week overall, though, with the Dow gaining 1.8% and the S&P 500 rising 2.4%. That is a pretty solid performance for the major indices given the backdrop of the Greek bailout and the recent weakness in the Chinese stock market. Bulls were disappointed to see the S&P 500 close about eight points below its all-time high, but again, it was still a winning week on Wall Street.

The big question is whether this week’s boom in the tech sector translates into real strength in the broader economy. The numbers are there for tech in terms of earnings, but the broader stock market remains relatively weak. The lack of breadth and depth to this week’s rally had some investors worried, but then again, how often does a market monster like Google rise 16% in a single day? The Tech Bubble of 1999-2000 was driven by the likes of Cisco (CSCO), Intel (INTC) and Microsoft (MSFT), and those companies seemed bulletproof back then, so it raises the question right now as to how “bulletproof” the current tech darlings might be.

Janet Yellen was on Capitol Hill this week, and she did a relatively good job in reassuring investors that the Fed was on the right track. She did emphasize that a rate hike (or maybe even two) was still possible before the end of the year, but investors did not seem overly worried. Bulls would have preferred to have seen the Dow and the S&P 500 light up the night sky like the Nasdaq did, but we are still very close to all-time highs for both indices, which has many investors optimistic that we could see these two indices join the Nasdaq at new highs early next week, so we shall see.

In raw economic news, we are still seeing mixed and “so-so” numbers. Friday’s University of Michigan Consumer Confidence number for July came in at 93.3, and that was below estimates of 95, as well as below June’s 96.1. Home sales for June rose to 1.17 million versus the expected 1.11 million rate, and building permits rose to 1.34 million versus the predicted 1.18 million rate. Once again, this mixed bag of economic news draws into question just how vibrant the broader economy really is, but then again, if you own Google, then you are probably not too worried about the Consumer Sentiment Report.

These are supposed to be the lazy, trading days of summer, but we have seen quite a lot of action in the stock market in the past couple of weeks. The Greek Crisis and the recent fall and bounce in Chinese stocks have kept the lazy days of summer quite interesting, and closing out the week with the Nasdaq at an all-time high has just added to the very strange action we have seen in the stock market. It seemed like “touch and go” for the broader market just a week or so ago, and it seemed as though we might have been headed for a meltdown. Instead, we have seen quite a bounce, and investors are hoping that the rally can hang on and gain some additional upside momentum.

Upside momentum will need to see some evidence that the economy is strong, though, and that will be the key in the weeks ahead. Earnings have been good so far, but not all that great, and that is another key needed if this market bounce will have more upside legs. The other “wild card” in this puzzle is the Federal Reserve and short-term interest rates. The Fed has had them at zero for more than six years, and it will be interesting to see what happens when Janet Yellen and the Fed finally do start to raise rates. The Fed, in a sense, has a “green light” to do so, since Greece seems at least temporarily fixed, and the stock market is flirting with all-time highs.

This makes for what will likely be an interesting rest of the summer. The Greek Drama is usually the type of stuff that we would see in September or October, and the July plunge in stock prices seemed sort of “October-ish” as well. We did get an impressive bounce here in mid-July, though, which has few bulls complaining as we head deeper into the summer months. Again the key will be economic numbers, earnings and comments and thoughts from Janet Yellen and the Fed. For the time being, though, the bulls are smiling this weekend and enjoying the upside rise.

That said, the Gorilla wishes each and all a fun and relaxing weekend. There are not many global shocks or “wild cards” in play right now, and that is a positive scenario as we head into the last half of July. We will be back in action on Monday, so again, enjoy the weekend and enjoy the renewed calm and confidence we are seeing in the stock market. This is not a typical July, and there certainly is never a dull moment in the financial markets. Have a great weekend!

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